CREA cuts 2018 forecast on new mortgage rules

Estimates 5.3% drop in national sales

TORONTO • The Canadian Real Estate Association has cut its home sales forecast for next year due to the impact of tighter mortgage regulations that come into effect New Year’s Day, which are expected to rein in spending for some buyers.

CREA said in an updated projection Thursday the banking regulator’s revised mortgage underwriting guidelines, which include a stress test for uninsured mortgages, will reduce sales activity across the country, particularly in and around Toronto and Vancouver.

The association now forecasts a 5.3-per-cent drop in national sales to 486,600 units next year. That new estimate shaves about 8,500 sales from its previous 2018 forecast.

The national home price is expected to slip by 1.4 per cent in 2018 to $503,100.

“With some homebuyers likely advancing their purchase decision before the new rules come into effect next year, the ‘pull-forward’ of these sales may come at the expense of sales in the first half of 2018,” CREA said in a statement.

“Meanwhile, other potential homebuyers are anticipated to stay on the sidelines as they save up a larger down payment before purchasing and contributing to a modest improvement in sales activity in the second half of 2018.”

In November, the number of homes sold through the Multiple Listing Service rose by 3.9 per cent compared with October, led by a 16-percent sales spike in the Greater Toronto Area. Sales were up 2.6 per cent from last November, marking the first year-over-year increase since March. That helped send the national home price up 2.9 per cent, year-over-year, to $504,000.

The number of newly listed homes rose 3.5 per cent in November, which reflected a large increase in new supply across the GTA.

In October, the Office of the Superintendent of Financial Institutions announced the final version of its revised guidelines, called B-20. The new rules, which come into effect on Jan. 1, require would-be homebuyers to prove they can still service their uninsured mortgage at a qualifying rate of the greater of the contractual mortgage rate plus two percentage points or the five-year benchmark rate published by the Bank of Canada.

CREA argues the new guidelines make it tougher for potential buyers with more than a 20-per-cent down payment to qualify for a mortgage. These low-ratio mortgages comprise the vast majority of Canadian mortgage originations, it added.

The association also narrowed its forecast for national sales activity this year. It expects sales to decline four per cent to 513,900 units in 2017 due to weak activity in Ontario, after the province in April announced measures such as a foreign-buyers tax to cool the market.

However, the association expects the national average price of a home to rise this year to $510,400, up 4.2 per cent compared to 2016.

While November sales activity in the Greater Toronto Area was down significantly compared to a year earlier, other large markets posted annual gains, including Greater Vancouver and the Fraser Valley, Calgary, Edmonton, Ottawa and Montreal.

BMO economist Robert Kavcic noted that the adjustment in the Toronto market is ongoing.

“But strong underlying supply-demand fundamentals should prove supportive next year once the remaining froth gets worked off,” he wrote in a note to clients.

“In all likelihood, Bank of Canada rate hikes and the coming rule changes from OSFI should keep the froth from returning. Elsewhere, look for continued strength in Ottawa and Montreal, stability in Alberta, and an ongoing supply-demand struggle in Vancouver.” and British Columbia offer cash rebates for buying electric vehicles; 97 per cent of electric car sales in Canada are in those provinces, compared to about 90 per cent of all new car sales.

Quebec is to launch a policy in 2018 requiring dealers to sell a certain percentage of electric cars.

According to FleetCarma, an Ontario-based tech company helping to enable the adoption of electric vehicles, September was a record-setting month for electric car sales in Canada.

That month’s total EV sales? Just 2,240 cars, out of a total of 186,800 cars sold.

Clean Energy Canada says electric vehicles represent a number of economic opportunities for Canada, including for auto parts manufacturers and the mining sector, spurred on by demand for the minerals and metals needed to make the lithium-ion batteries.

If Canada doesn’t jump on board more quickly, the rest of the world is going to snap up those opportunities and we’ll lose out, says the report.